Heat turned up on Eurotherm: The Investment Column

Eurotherm chief executive Claes Hultman walks on hallowed ground, and that is not just a reference to his other job as chairman of Wembley. Such is his veneration in the City that shareholders forced the controls and instrumentations company to take him back earlier this year after he stormed out following an acrimonious and very public tiff with the then chairman.

But the aggravation and the pounds 300,000 fees paid to ING Barings and other advisers as a result of that dispute are a flea-bite compared with the challenge Mr Hultman now faces.

Pre-tax profits up 11 per cent at pounds 37.7m in the year to October represent a significant slow-down from the 30 per cent or more growth which Mr Hultman has typically managed to squeeze out of the business in the six years he has been there.

Combined with news of tougher trading ahead, particularly in the US, Germany and the Scandinavian countries, the shares reacted with a 20p fall to 540p yesterday.

All the damage last year was concentrated in the dominant controls and instrumentation business, where around half the pounds 900,000 profits shortfall to pounds 23.4m was due to the closure of a contract electronics operation in the US.

The problem facing Eurotherm is that the market for traditional temperature controls and paper chart recorders for sewage plants, process industries and the like is either mature or in decline, while it takes two or three years for its new leading edge products to kick in.

Those will perform in future, but it is clear the days of dramatic margin improvement at the group are over, which explains the new-found concentration on acquisitions. With cash representing a third of shareholders' funds, Eurotherm could comfortably spend up to pounds 100m over the next 18 months or so on one or several buys.

There is no reason Mr Hultman should not manage this new phase of the company's development as well as the past. But if the pound remains at current levels, profits might be pushed to exceed pounds 41.5m this year. Standing on a prospective multiple of 18, the shares could mark time until the future becomes clearer.